State-Based Restrictions on Corporate Political Speech

Spending to influence federal elections in 2024 exceeded $14 billion. Corporations such as SpaceX and Citadel dominate the list of top spenders.

In a recent article, W.C. Bunting, a law professor at Stetson University, proposes to curtail corporate political speech by relying on state corporate law. Bunting outlines legal arguments that he claims are viable under current law as well as proposes state law reforms.

Politicians and advocates across the political spectrum worry about the effects of unrestricted corporate speech, and Bunting highlights several harmful consequences, both economic and social. He sees little hope for federal restrictions, however, at least under current law. In First National Bank of Boston v. Bellotti, the U.S. Supreme Court enshrined corporations’ right to speech even if it is unrelated to a corporation’s business interests—what Bunting terms “pure” political speech.

Despite lamenting the ruling as overbroad, Bunting concedes that the Court is unlikely to revisit it. He turns to state corporate law for possible relief, identifying several legal arguments a suing shareholder could employ to challenge pure political speech.

A shareholder might argue that when a corporation engages in pure political speech, it acts “ultra vires,” or beyond what the law empowers it to do. Corporations exist only by the authorization of a state, endowed with certain default powers that each corporation’s charter can modify or expand. Under Delaware law—the most influential body of state corporate law—corporations have no default power to engage in pure political speech, Bunting explains. If a corporation’s charter confers no such power either, then a shareholder could assert an ultra vires argument, Bunting claims.

Bunting doubts the viability of this argument, however. He observes that similar arguments have failed in the past because courts defer to a corporation’s own judgment about whether an act, such as a campaign donation, was in fact “pure” political speech or instead served a legitimate business purpose, bringing it within the corporation’s powers.

Bunting considers an alternative argument: Since corporations owe their shareholders a duty to maximize profits, engaging in pure political speech—which does not improve profits—violates this duty.

But shareholders would again face a difficult legal standard, Bunting observes. Courts presume that a corporation’s directors intended in good faith to benefit their shareholders. Plaintiffs must overcome this presumption, and corporate directors can raise pretextual justifications that plaintiffs would struggle to overcome without “smoking gun” evidence, Bunting argues.

Recognizing the limitations of both legal theories, Bunting proposes his own, novel argument: When a corporation makes pure political statements that only some shareholders agree with, it illegally favors those shareholders over others.

State corporate law requires corporations to treat shareholders equally, for example, when issuing dividends—a corporation cannot pay unequal dividends to equally situated shareholders. Bunting proposes extending this reasoning to “ideological dividends.” When a corporation accepts investment from multiple shareholders and then expends those investments on political activity that only some agree with, it distributes unequal “psychic” benefits, he argues.

This logic becomes strained if extended too far, Bunting concedes—shareholders could argue that any business decision they dislike provides them with less psychic benefit than another group of shareholders. But Bunting contends that corporate political speech constitutes a special case where these psychological effects should be legally relevant.

Bunting argues that political speech has a more predictably disparate impact on shareholders—splitting them sharply into two groups, those who agree and those who disagree—in contrast to typical business decisions, which pursue financial gain that benefits all investors. This predictability distinguishes political speech because, by engaging in political speech, corporate directors know they will favor a majority of shareholders at the minority’s expense. That awareness provides the basis for liability, Bunting argues.

Bunting claims that current law supports his argument, but he calls for state law reforms to reinforce it further.

He encourages state legislatures to codify his legal theory by designating pure political speech as a form of unequal shareholder treatment. Furthermore, Bunting proposes lowering the hurdle that plaintiffs must clear: Once a plaintiff has shown that political speech has occurred, the legal burden should shift to the corporation to provide a nonpretextual business justification, instead of requiring plaintiffs to show that the corporation lacked such a justification.

Bunting ultimately calls for further scholarship on the concept of ideological dividends as an actionable litigation strategy. He emphasizes, however, that his proposals would accomplish a first step toward “restoring the boundary lines” between the corporate and political spheres.